Interest on outstanding receivables: Transfer pricing implications
- During the year under consideration, the Assessee had outstanding receivables from Associated Enterprise which were consequent to the international transaction of provision of software development services and were not in the nature of any advance/ loan.
- The Assessee contended that the working capital adjustment duly considered the impact of outstanding receivables.
- However, the Transfer Pricing Officer was of the view that with retrospective introduction of explanation under section 92B of the Act, receivable formed part of international transaction. Hence, interest was to be charged at 14.45% on the outstanding receivables received beyond the due date.
- The Tribunal placed reliance on the decision of Hon’ble Delhi High Court in the case of Principal Commissioner of Income Tax Vs Kusum Health Care Pvt.Ltd., wherein it was held that no adjustment was to be made on account of notional interest on receivables by relying upon explanation under Section 92B of the Act by treating the continued debit balance as an international transaction. Moreover, when the taxpayer was debt free company, there was no question of charging any interest on receivables.
- In the present facts of the case, the Assessee was a debt free company. Further, when the Assessee was not charging interest from unrelated third party/ non Associated Enterprise, in case of such delay, no adjustment on interest in case of Associated Enterprise could be made.
- Therefore, no adjustment could be made on account of interest due on receivable from its Associated Enterprise in case of the Assessee.